A Toll Increase for Toll Bridge is Not a Tax Increase

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Best Best & Krieger LLP

California Appellate Court Says Toll is a Fee to Use Government Property, Exempt from Tax Definition

Tolls imposed for use of state-owned toll bridges are not taxes, and increases to the rates for those tolls are not subject to voter approval, according to the California Court of Appeal. In its June 29 decision in Howard Jarvis Taxpayers Association et al. v. Bay Area Toll Authority et al., the court said, instead, tolls are exempt from the definition of a “tax” under article XIII A, section 3(b)(4) of the California Constitution, which exempts fees imposed for entrance to, and use of, state-owned property. This provision was added to the California Constitution as a part of Proposition 26 in 2010. Proposition 26 also added article XIII C, section 1(e), which contains a virtually identical provision with respect to local governments.

In 2017, the Legislature passed Senate Bill No. 595, which enacted statutes directing several public agencies to call a special election at which a proposed toll increase for the seven state-owned Bay Area bridges and an associated expenditure plan would be submitted to voters as Regional Measure 3. RM3 was approved by the voters by a 55 percent margin.

Howard Jarvis Taxpayers Association argued that the toll increase was a “tax” and failed to comply with article XIII A, section 3(a) of the California Constitution. This provision requires any state statute resulting in a tax increase be passed by two-thirds of each house of the Legislature. Alternatively, HJTA argued the toll was a local tax imposed by the public agencies and that it was invalid for failing to obtain two-thirds voter approval as required in article XIII C, section 2(d) of the California Constitution.

The First District Court of Appeal, Division 2, affirmed the lower court’s holding and found that the toll increase was imposed by the State, despite local discretion on implementation and administration. The court also affirmed the lower court’s decision that the toll increase was an increase to a fee imposed for entrance to or use of state property. As such, the toll was exempt from the definition of a “tax” under article XIII A, section 3(b)(4) of the California Constitution, and approval requirements for increases to state taxes were therefore inapplicable to the toll increase.

HJTA argued that the toll increase only falls under the above exemption if it reasonably relates to the cost of making bridges available for crossing and/or is tied to the benefit the toll payer obtains in crossing the bridges, based on reasonableness standards in article XIII A, section 3(d). In response, the Court of Appeal turned to general principles of statutory interpretation and found that the reasonableness language was clearly intended to be omitted from section 3(b)(4) because the reasonableness language was only present in three of the exemptions. As a result, the Court of Appeal determined that article XIII A, section 3(d) does not impose a substantive requirement of reasonableness on fees for entrance to, or use of, state property and, therefore, the toll increase fell into the section 3(b)(4) exemption and was not a “tax” increase.

A different division of the First District Court of Appeal reached a different conclusion earlier this year in Zolly v. City of Oakland, when interpreting virtually identical provisions of the California Constitution applicable to local fees. Bay Area Toll Authority stated, “While we respectfully disagree with Zolly on the interpretation of the burden of proof provision, we of course express no opinion on the court’s ultimate conclusion as to whether and when a franchise fee constitutes a tax.” The City of Oakland has petitioned the Supreme Court for review of Zolly.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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